SYSCO CORP 10-Q Summary: Period Ended April 1, 2000
Business Context and Reporting Period
This Form 10-Q covers the 39-week period ended April 1, 2000, and the 13-week quarter ended on the same date. SYSCO Corporation is a foodservice distributor. The financial statements are unaudited but have been reviewed by Arthur Andersen LLP. The company operates with a fiscal year ending in late June/early July.
Key Financial Metrics
| Metric | 39-Week Period (Apr 1, 2000) | 39-Week Period (Mar 27, 1999) | 13-Week Period (Apr 1, 2000) | 13-Week Period (Mar 27, 1999) |
|---|---|---|---|---|
| Sales | $14,031,504 | $12,604,182 | $4,722,935 | $4,164,877 |
| Net Earnings | $301,529 | $245,398 | $101,995 | $72,579 |
| Diluted EPS | $0.90 | $0.73 | $0.22 | $0.22 |
| Operating Cash Flow | $475,183 | $385,349 | N/A | N/A |
| Total Debt (Current + Long-term) | $1,141,182 | $1,045,670 | N/A | N/A |
| Cash and Equivalents | $111,756 | $112,493 | N/A | N/A |
Note: All figures in thousands except per share data. Total debt includes notes payable, current maturities of long-term debt, and long-term debt.
Material Changes vs. Prior Period
- Sales Growth: Sales increased 11.3% for the 39-week period and 13.4% for the quarter. Real sales growth (excluding acquisitions and price changes) was approximately 9.3% for the 39 weeks and 10.0% for the quarter.
- Profitability: Net earnings increased 22.9% for the 39 weeks and 40.5% for the quarter. Pretax earnings increased 25.1% (39 weeks) and 39.4% (quarter).
- Acquisitions: The company completed five acquisitions during the period (Newport Meat, Doughtie's Foods, Buckhead Beef, Malcolm Meats, Watson Foodservice, and FreshPoint Holdings). These contributed to sales growth and increased goodwill/intangibles on the balance sheet.
- Accounting Change: A one-time, after-tax, non-cash charge of $8,041,000 was recorded to comply with SOP 98-5 regarding start-up costs. This reduced net earnings but did not affect cash flow.
- Operating Expenses: Expenses for the 39 weeks were higher due to facility closing costs and SYSCO Uniform Systems implementation (approx. $13 million). Quarter-over-quarter expenses were comparable.
Guidance, Outlook, and Risks
- Capital Allocation: The company continues its share repurchase program, having purchased 3,898,400 shares for $128.1 million under the latest authorization. A shelf registration for 2.85 million shares was filed for future acquisitions.
- Liquidity: Commercial paper borrowings were $199.4 million at period end. The long-term debt to capitalization ratio was 37%, within the target range of 35-40%.
- Market Risks: The company holds no derivative instruments. Interest rate risk is limited as most long-term debt is fixed-rate. The primary market risk is exposure to food cost inflation and economic conditions affecting the foodservice industry.
- Legal: Various legal proceedings are ongoing, but management does not expect a material adverse effect on financial position.
Investor Verification Checklist
- Verify the impact of the $8 million SOP 98-5 accounting charge on year-over-year earnings comparisons.
- Confirm the final asset and liability valuations for the five acquisitions completed in the period, as current balance sheet figures are preliminary.
- Monitor the company's ability to maintain the 35-40% debt-to-capitalization target while funding acquisitions and share buybacks.
- Review the specific cost drivers for the $13 million in one-time operating expenses related to facility closures and system implementation.
- Assess the sustainability of the 9-10% real sales growth rate in the context of food cost deflation/inflation trends.